Make Haste, Slowly

President Obama's financial rescue plans have two limiting factors. One is the willingness of the Congress to sanction what amounts to an unprecedented federal intervention in the economy and the ability of the administration to calmly transport the Congress towards a particular destination.

The second is the need to consider not short term consequences or long-term consequences, but interim consequences. This point is often lost. The federal government, not Congress, will manage the aftermath of any action it takes. It can reliably project short-term consequences and probably can envision long-term consequences - they are only a few real possibilities.  2nd order effects of actions - what happens between the solution being implemented and the problem being solved - are notoriously, extraordinarily difficult to envision. Fixing the economic crisis is like playing three-dimensional dominoes.

The administration has heard shouts for nationalization, for firing the bums, for breaking the banks into pieces, for making them eat their losses, and believe you me, there are officials who are privately advocates of all of these positions.  What's kept the administration from being as bold as its critics want is not a lack of imagination, or a lack of contact with the outside world, or an overreliance on the banks. (Speaking of questions about boldness: Treasury Secretary Tim Geithner has co-signed several trillion dollar loan facilities and is testifying today in support of the power for a government to take over a company it considers to be at-risk.)

It's a combination of the knowledge that Obama cannot do big things unless he remains a majority president, that he could make a hash of them if Congress perceives that the administration is pushing too close to the boundary of what's acceptable, and that the administration has accepted that it cannot allow Congress to be a partner in leading the American people towards a solution.  The stimulus package debate in February was dispositive; the administration lost confidence in Congress's maturity fairly quickly;

Here are some interim concerns to which the administration has no answers  - and neither does Congress.

What would happen if there bank runs at financial institutions that were nationalized?

What would happen if there were major stock sell-offs at financial institutions whose management has been sacked by the government?

What would happen if there were bank runs at financial institutions during any interim period between said management sack and the installation of new management?

What about the real possibility of small businesses collapsing when financial institutions are forced to call in their loans because they need capital to improve their balance sheets before nationalization?  (Access to credit is already severely crimped.)

What would happen if most economic option for a bank would seem to be foreign bank purchases of American financial institutions?

Is Treasury's failure to do the big thing a failure of courage? You can argue that the administration should have the courage to propose a bold thing like nationalization and then force/convince/sway Congress and keep them on board. But there's no courage in proposing a bold thing that lacks 60 Senate votes.

My sense is that the administration is willing to go to Bigger Fixes if their piece-meal fixes fail. They've deliberately chosen the least-bumpy path - one that traverses the fewest rapids - the path that Congress finds acceptable.

Further options -- full public disclosure by the Treasury, deeper government intervention, drafts of what a reorganized financial sector would look like, estimates of the cost and scale and scope of nationalization of the behemoths - all should all be out there and batted around, even when (especially when) it's inconvenient to Treasury or the White House.  The crisis is too important for everyone to avoid these questions.

But the crisis is too urgent for the administration to avoid asking themselves: 'And then what happens?'